When the European stock market regulator recently examined the shift in stock trading dynamics following Brexit, the result didn't come as a surprise to stakeholders. The withdrawal of the UK from the European Union has greatly benefited the stock exchanges in Amsterdam and Paris, with Frankfurt experiencing only modest gains. The reason for this is that the bulk of trading previously conducted in London has now been concentrated in Amsterdam and Paris through so-called Multilateral Trading Facilities (MTF) platforms, which have significantly boosted trading volumes in these two locations. Before Brexit, out of 30 such platforms in the UK, accounting for 93% of MTF trading volumes in the then-European Union, there were 122 in total. However, 2022 revealed a significant transformation: now, 95% of MTF trading within the EU is divided among three countries, with only 9% attributed to Germany, while 57% goes to the Netherlands, and 29% to France.

In terms of trading volumes, this specifically means that trading activity in Amsterdam has increased from the previous 3.5 billion euros by a factor of 633 to 2.2 trillion euros. In Paris, it has risen from 11.6 billion euros to 1.4 trillion euros. A similar dramatic shift did not occur in regulated markets, where France and Germany maintained their dominant positions with 24% and 20% of the trading volumes, respectively, compared to the Netherlands with 12%.

The driving force behind this development in the Multilateral Trading Facilities (MTF) is the "migration" of the most important of these platforms, including Turquoise, CBOE Europe, and Aquis Exchange, which are part of the London Stock Exchange (LSE). While they retained their presence in London, they also established branches in Amsterdam and Paris to protect their trading activities. These three exchange operators, LSE, CBOE, and Euronext, thereby maintain their positions as the largest pan-European trading platforms, typically accounting for around 20% of trading volumes on a regular trading day each. The Deutsche Börse views this development with composure, not least because its own business was not significantly negatively affected by this shift in trading activities. Nevertheless, it's worth noting that in the first nine months, the group experienced revenue declines, particularly in stocks (-33%) and stock derivatives (-10%), and securities trading overall (-18%). These declining business areas accounted for about one-third of the total revenues.

Beyond limited immediate business influences, neither the Deutsche Börse nor other stakeholders should merely shrug off the development from the perspective of the financial market. The fact that other locations in Europe have absorbed the three most revenue-generating Multilateral Trading Facility (MTF) platforms and consequently drawn substantial liquidity in trading is not a doomsday sign for the financial market's development, but it is undoubtedly not a positive signal either.

This topic has implications, especially when it comes to stocks. Franz-Josef Leven, Deputy Managing Director of the German Equity Institute, explains that "liquidity has a magnetic effect." However, he advises not to focus solely on pure stock market trading volumes because many factors are important for the competitiveness of a financial market. This magnetic effect applies to all existing market participants as well as existing and, not least, new issuers. Nevertheless, it is important for the financial market, for example, that "there is a steady supply of publicly traded stocks, and that this supply is listed on German exchanges in Germany." The trend, observed in the past, where IPO candidates did not choose Frankfurt for their primary listing but turned to stock exchanges outside of Germany, is "very unfortunate."

Regarding recent signals from billion-dollar startups like Flix or Celonis - where shareholders had to postpone their hoped-for exit through an IPO due to the outbreak of the Ukraine war in an extremely volatile, sometimes chilly stock market environment - it appears that at least the IPO boom from 2021 in the startup sector will not be repeated here anytime soon.

"In this context, the design of stock law in Germany also plays a role," emphasizes Leven. "For young companies, for example, the Netherlands has a much more positive design than we do." The capital market expert is referring to multiple voting rights, which allow young founders to "retain a certain influence on their company, even if an IPO dilutes their shares," or the tax treatment of employee shares acquired before going public when they are sold later. Leven explicitly welcomes the fact that lawmakers are now addressing this issue with the Financing for the Future Act (Zukunftsfinanzierungsgesetz). He notes that for decades, little progress was made in this area. However, he also acknowledges that in addition to stock law, market depth and liquidity of a stock exchange are "also important criteria for choosing a stock exchange."

It's not just that there is a limited capital demand from new or existing issuers in the stock market in this country – that is, IPOs or capital increases – but there is also a lack of capital supply. "There is a shortage of large pension funds, as mainly found in the Anglo-Saxon world, which significantly invest in stocks." While it is often possible to mobilize sufficient capital from foreign institutional investors, especially for tech IPOs in this country, the low liquidity of the new assets on the domestic stock exchange is one, although certainly not the only reason, why the share price performance of some newcomers to the stock market here is not as spectacular. In general, a sometimes low free float might play a role, but it's not always and not the only factor.

High stock market trading volumes reflect liquid trading and are naturally a quality indicator for market participants. The decisions of Turquoise and CBOE Europe to choose Amsterdam as their branch and Aquis to select Paris in the wake of Brexit are unfortunate for the domestic financial market, although not inexplicable. "A variety of factors play a role, including, not least, the closer proximity of these locations to the parent company in London," explains Leven, an assessment that the Deutsche Börse shares. Ownership structure is also a factor. Apart from Deutsche Bank, Turquoise's founders include four US heavyweights, Goldman Sachs, Merrill Lynch, Morgan Stanley, and Citigroup, as well as BNP Paribas, Société Générale, and the more Francophile Swiss UBS, and at that time, Credit Suisse. All these investment banks also share an Anglo-Saxon mentality, which they find most closely in Amsterdam. This is also because there are practically no language barriers there. Everyone speaks English in Amsterdam, even children. Therefore, not only in terms of laws but also in terms of internationality, there is still work to be done in this country.